Tighter conditions for Canadian home loans

As of Monday July 9th Canada amended mortgage rules affecting new residents and citizens.

Concerned with the amount of debt Canadian households were facing, the Government put in place the new rules to slow down the growth in levels of debt, which in the final quarter of 2011 stood at a record high of 152 per cent of household income.

The new rules concern the size of equity loans that lenders can issue and the maximum amortization period. Previously in Canada you could borrow up to 85 per cent of a property’s value but with the new rules the maximum amount for a home equity loan has been lowered to 80 per cent. Also, the maximum amortization period a lender can provide has been lowered from 30 to 25 years, meaning borrowers will have less time to fully repay the debt.

The government’s main concern is that Canadians are taking on too much debt. At the moment interest rates sit at a historically low level but once they increase some borrowers may find themselves over extended. The rules will combat this trend by limiting the amount of debt the borrowers can face which will also be beneficial if there is a future economic crisis resulting in high unemployment.

The changes will also have a knock-on effect on the housing market which experts predict will start to slow down. In major cities, such as Toronto, average home prices have been increasing dramatically over recent years and the new changes should see an end to this growth and possibly a decline in the average home prices. The changes could possibly, however, have a negative impact on Canada’s economic growth with experts singling out the reduction in the amortization period as potentially causing around a 0.2 per cent decline in growth in 2013.

For details of properties for sale in Canada, visit the Canada listings on Rightmove Overseas. Preparation for anyone considering a move to Canada should include planning for the transfer of your pounds into Canadian dollars. For information on how to do this safely and save money when doing so – giving you more to spend on shopping – speak to currency exchange specialist Smart Currency Exchange.